To ease tax rules, Modi Government has increased the limit for Presumptive Taxation Scheme (PTS). As per Budget 2016, small businesses with gross income up to Rs 2 crore can now use the presumptive taxation scheme. Earlier the ceiling was of Rs 1 crore only. Limit to avail Presumptive Taxation Scheme increased.

The finance minister proposed that the benefit of PTS be expanded to include professional income tax assessees as well. Professionals with less than Rs.50 lakh receipts in a financial year have also been brought under the umbrella of PTS.

For this purpose, 50% of the total receipts of the professional during the fiscal will be considered as profit and get taxed under the income tax head “profits and gains of business or profession”.

 

In this regard, new section 44ADA is proposed to be inserted in the Act

• To provide for estimating the income of an assessee who is engaged in any profession referred to in sub-section (1) of section 44AA
• such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette
• Whose total gross receipts does not exceed Rs 50 lakh in a previous year.
• The scheme will apply to such resident assessee who is an individual, Hindu undivided family or partnership firm
• Not applicable on Limited Liability partnership firm. Also not be adopted by any person who has claimed benefit under sections 10A, 10AA, 10B and 10BA, as well as 80HH and 80RRB, which primarily cover businesses in free or special economic zones or in backward areas
• Under the scheme, the assessee will be deemed to have been allowed the deductions under section 30 to 38.
• However, firms can claim deduction in respect of salary and interest to partners.
• Assessee will not be required to maintain books of account under sub-section (1) of section 44AA and get the accounts audited under section 44AB in respect of such income unless the assessee claims that the profits and gains from the aforesaid profession are lower than the profits and gains deemed to be his income under sub-section (1) of section 44ADA and his income exceeds the maximum amount which is not chargeable to income-tax.
• An assessee adopting this scheme is exempted from payment of advance taxes related to such a business.

These changes will be effective from April 1, 2017.

 

The rate of estimated income under PTS has remained unchanged at 8%. It implies that if the above mentioned conditions are satisfied, the eligible businesses can estimate their income at 8% of the total turnover or gross receipts. However, it is left to the assessee to willingly declare a higher income than the mandatory 8% of gross receipts or total turnover, while filling returns.

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